Case 1:11-cv-06663-NLH-AMD Document 40 Filed 12/30/13 Page 1 of 30 PageID:
UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
: FOYELL D. OWENS, : : Civ. A. No. 11-6663 (NLH)(AMD) Plaintiff, : : v. : OPINION : AMERICAN HARDWARE MUTUAL INS. : CO., et al., : : Defendants. :
APPEARANCES:
STEPHEN M. TATONETTI DUBOIS, SHEEHAN, HAMILTON, & LEVIN 511 COOPER STREET CAMDEN, NJ 08102
On behalf of plaintiff
STEPHEN R. DUMSER SWARTZ CAMPELL, LLC 1300 ROUTE 73 BLOM COURT, SUITE 101 MT. LAUREL, NJ 08054
On behalf of defendants
HILLMAN, District Judge
This case concerns plaintiff’s claims that the defendant
insurance company, American Hardware Mutual Insurance Company, is
equitably estopped from denying his entitlement to Underinsured
Motorist Insurance (“UIM”) coverage and, if not, whether he is
entitled to coverage under a policy issued to his employer.
Presently before the Court are the parties’ cross-motions for Case 1:11-cv-06663-NLH-AMD Document 40 Filed 12/30/13 Page 2 of 30 PageID:
summary judgment.1 For the reasons expressed below, plaintiff’s
motion will be denied, and American Hardware’s motion will be
granted.
BACKGROUND & DISCUSSION
Plaintiff, Foyell D. Owens, was assigned a cargo van to drive
to his job assignments repairing and adding accessories to
forklifts for Delaware Valley Lift Truck, Inc. (“DVLT”). In the
mornings, he called DVLT from home in Mount Laurel, New Jersey for
his job assignments for the day and drove the van to the job sites.
At the end of the work day, he would drive immediately home, or to
DVLT in Bensalem, Pennsylvania, for supplies and then home.
On October 29, 2007, after driving the work van to his home,
he took the work van out again around 5:00pm.2 About fifteen
1 Earlier in this case, plaintiff, Foyell D. Owens, filed a motion for summary judgment. In considering that motion, the Court noted that plaintiff had briefed New Jersey law and in its opposition, defendant, American Hardware Mutual Insurance Company, briefed Pennsylvania law. The Court also noted that the parties did not comply with Local Rule 56.1 requiring the moving party to provide a statement of undisputed facts and a corresponding response from the opposing party. Accordingly, the Court denied plaintiff’s motion for summary judgment. The present motions comply with Local Rule 56.1 and both parties have supplied a comprehensive choice of law analysis to support the application of either New Jersey or Pennsylvania law.
2 Although prior motion briefing represented that plaintiff was using the van to pick up his daughter from school, it is not included in either parties’ statement of undisputed facts in support of their current cross-motions. The relevance of the nature of plaintiff’s driving the van at that time is discussed below.
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minutes later, plaintiff was involved in an automobile accident
caused by Imran Khan, who was driving a car owned by Mohammed Ali
Hasan. Plaintiff suffered serious bodily injuries, including to
his lower back, which required him to undergo a lumbar laminectomy
with installation of hardware in his spine.
On October 7, 2009, plaintiff filed suit against Khan in New
Jersey Superior Court, Law Division, Burlington County. The car
Khan was driving was insured by Allstate Insurance Company with a
policy providing $50,000 in liability coverage. The DVLT work van
was insured by defendant American Hardware Mutual Insurance
Company, which provided $500,000 in Pennsylvania underinsured
motorist coverage. On March 4, 2010, plaintiff’s counsel sent
American Hardware a letter asking whether it would waive its
subrogation rights and permit plaintiff to accept Allstate’s offer
of the $50,000 policy limits to settle plaintiff’s case against
Khan.3 On March 24, 2010, American Hardware agreed, and plaintiff
3 With regard to UIM benefits, the New Jersey courts have instructed the following procedure, called Longworth notice:
As a matter of future conduct, an insured receiving an acceptable settlement offer from the tortfeasor should notify his UIM carrier. The carrier may then promptly offer its insured that sum in exchange for assignment to it by the insured of the claim against the tortfeasor. While promptness is to be ultimately decided by the circumstances, 30 days should be regarded as the presumptive time period if the insured notices his carrier prior to assignment of a trial date. In any event, an insured who has not received a response from his carrier and who is in doubt as to whether acceptance
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executed a release of liability for his claims against Khan in
consideration of the $50,000 settlement.
According to plaintiff, his damages far exceeded $50,000.
Plaintiff, however, claims that he accepted the $50,000 from
Allstate in settlement of his case against Khan because American
Hardware had previously confirmed in June 2009 that the DVLT van
policy provided $500,000 in UIM benefits. After dismissing his
case with prejudice against Khan, plaintiff then presented a claim
to American Hardware for UIM benefits. To date, American Hardware
has not administered plaintiff’s UIM benefits claim.
Plaintiff filed the instant suit against American Hardware
alleging that the UIM policy requires that his claim be arbitrated,
but American Hardware has refused to go to arbitration. Plaintiff
alleges that American Hardware is equitably estopped from refusing
to arbitrate his UIM claim because he settled his case against
Khan, and accepted a fraction of his damages, based on the
representation by American Hardware that up to $500,000 was
of the tortfeasor's offer will impair his UIM rights may seek an immediate declaratory ruling from the trial court on order to show cause on such notice as is consistent with the circumstances. We further hold that UIM carriers may, if they choose, honor demands from their insureds to proceed to arbitration of the UIM claim prior to disposition of the claim against the tortfeasor.
Rutgers Cas. Ins. Co. v. Vassas, 652 A.2d 162, 166 (N.J. 1995) (citing Longworth v. Van Houten, 538 A.2d 414 (N.J. Super. App. Div. 1988)).
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available to him through the UIM policy. Plaintiff seeks judgment
in his favor on his claim that he is entitled to UIM coverage, and
to compel American Hardware to arbitrate the amount of his claim.
American Hardware has opposed plaintiff’s motion, and cross-
moved for summary judgment, arguing: (1) Pennsylvania law applies
to the interpretation of the UIM policy; (2) the policy contains an
exclusion to coverage for, “Anyone using a vehicle without a
reasonable belief that the person is entitled to do so”; (3) when
plaintiff was hired, he had signed a document acknowledging that
the van was not to be used for personal use; (4) he was involved in
the accident while using the van for a personal use; (5) the policy
exclusion therefore applies; (6) it did not know about the
implication of the non-permissive use exclusion when it informed
plaintiff’s counsel of the availability of UIM benefits;(7) because
plaintiff knew of the non-personal use, but American Hardware did
not, at the time plaintiff relinquished his claims against Khan,
plaintiff cannot claim that equity compels American Hardware to
provide coverage under the UIM policy; and (8) plaintiff has not
been prejudiced by releasing his claims against Khan because both
Khan and the vehicle owner, Hasan, are judgment proof.
In reply, plaintiff argues that American Hardware is incorrect
that Pennsylvania law applies, and New Jersey law is controlling.
Plaintiff also contends that regardless of how the van was being
used at the time of the accident, equitable estoppel principles bar
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American Hardware from refusing to arbitrate his UIM claim.
DISCUSSION
A. Subject matter jurisdiction
This Court has jurisdiction over this matter pursuant to 28
U.S.C. § 1332 because there is complete diversity of citizenship
between the parties and the amount in controversy exceeds $75,000.
Plaintiff is a citizen of New Jersey, and defendants’ citizenship
is as follows: American Hardware Mutual Insurance Company is an
Ohio corporation with a principal place of business in Minnetonka,
Minnesota; Motorists Commercial Mutual Insurance Company (the new
name of American Hardware) is an Ohio corporation with its
principal place of business in Minnesota; The Motorists Insurance
Group (of which American Hardware/Motorists Commercial is an
affiliate) is an Ohio corporation with its principal place of
business in Columbus, Ohio.
B. Standard for summary judgment
Summary judgment is appropriate where the Court is satisfied
that the materials in the record, including depositions, documents,
electronically stored information, affidavits or declarations,
stipulations, admissions, or interrogatory answers, demonstrate
that there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law. Celotex
Corp. v. Catrett, 477 U.S. 317, 330 (1986); Fed. R. Civ. P. 56(a).
If review of cross-motions for summary judgment reveals no genuine
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issue of material fact, then judgment may be entered in favor of
the party deserving of judgment in light of the law and undisputed
facts. See Iberia Foods Corp. v. Romeo Jr., 150 F.3d 298, 302 (3d
Cir. 1998) (citation omitted).
C. Analysis
As a federal court sitting in diversity jurisdiction, this
Court must apply the law of the state in which it sits, including
the choice of law rules of the forum state. The Court must
therefore look to New Jersey’s choice of law rules to determine
whether a New Jersey court would apply the law of New Jersey or
Pennsylvania when interpreting this Pennsylvania insurance
contract. Aetna Sur. and Cas. Co. v. Sacchetti, 956 F. Supp. 1163,
1168 (D.N.J. 1996) (citing Klaxon v. Stentor Elec. Mfg. Co., 313
U.S. 487, 496 (1941)). Generally, in interpreting insurance
contracts, New Jersey courts will apply “the law of the place of
the contract . . . unless the dominant and significant relationship
of another state to the parties and the underlying issue dictates
that this basic rule should yield.” Sacchetti, 956 F. Supp. at
1168 (quoting State Farm Mutual Automobile Insur. Co. v. Simmons
Estate, 84 N.J. 28, 417 A.2d 488, 493 (N.J. 1980)).
American Hardware presents what appears to be a very
straightforward argument. Succinctly stated, American Hardware
argues that the policy explicitly excludes coverage for accidents
that occurred during a non-permissible use, plaintiff knew he was
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driving the van for personal use, which was not permitted by his
employer, and thus he is not entitled to coverage. Because the
place of contracting is Pennsylvania, American Hardware contends
that Pennsylvania law therefore applies to the interpretation of
the contract. American Hardware further contends that even if the
court compares Pennsylvania and New Jersey law, there is no
conflict, however, because the policy exclusion against covering an
impermissible use would be enforced in either state. Moreover,
American Hardware argues that the principles of equity would weigh
in favor of American Hardware in either state because in order for
equitable estoppel to apply, plaintiff must show detrimental
reliance under the law in both states. American Hardware contends
that plaintiff cannot do so because Khan is judgment proof - that
is, even if it was inequitable for American Hardware to renege on
its assurances that plaintiff would be entitled to the UIM benefits
if he settled his claim against Khan, plaintiff could not have
recovered any more from Khan if he had not settled that claim.
American Hardware also argues that for equitable estoppel to apply,
plaintiff must have clean hands, and because he knew he was using
the van impermissibly but did not inform American Hardware, he is
not entitled to the UIM benefits.
In contrast, plaintiff argues that under New Jersey law, which
should apply here, American Hardware must be estopped from reneging
on its representation that UIM benefits were available to him by
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virtue of American Hardware’s consent to settlement of plaintiff’s
suit against Khan. Plaintiff argues that American Hardware’s
failure to be aware of its own policy exclusion and investigate the
nature of the accident cannot be absolved by the fortuitous post
hoc determination that Khan was apparently “judgement proof.”
The Court finds, as argued by plaintiff, that the starting
point in the choice of law analysis in this case should be the
determination of which state’s equitable estoppel principles govern
American Hardware’s refusal to arbitrate plaintiff’s claim for UIM
benefits, and not whether the policy exclusion is enforceable under
New Jersey or Pennsylvania law to completely deny his claim. Even
accepting as true that plaintiff knew he was using the van for
personal use, and such use was prohibited by his employer,4 the
Court does not first consider which state’s law to apply to the
application of policy exclusion for a non-permissible use. This is
because American Hardware did not deny plaintiff’s UIM claim based
on that exclusion when he presented his claim. If from the outset
American Hardware had denied plaintiff’s claim because he did not
4 Plaintiff contests that his use of the van at the time of the accident was not permitted by his employer. Plaintiff further contests that the form, which purportedly confirms plaintiff’s understanding that he was not to use the van for personal use, demonstrates his knowledge of the restriction and evidences that his use of the van at the time of the accident was knowingly in violation of company policy. These disputed facts are discussed in more detail below in the Court’s analysis of American Hardware’s denial of plaintiff’s UIM benefits claims based on the policy exclusion.
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have a “reasonable belief” that he was permitted to use the van in
the way he did at the time of the accident, the Court would have to
first consider the propriety of American Hardware’s application of
that exclusion and whether to apply New Jersey or Pennsylvania law
to make that determination. American Hardware did not, however,
refuse to arbitrate plaintiff’s claim for UIM benefits on that
basis until many months after it informed plaintiff’s counsel that
the UIM benefits were available to plaintiff, and many months after
plaintiff settled with Khan.5
Thus, it must first be determined what law to apply to
plaintiff’s claim that American Hardware has acted inequitably. An
analysis of the case law in New Jersey and Pennsylvania reveals
that no real conflict exists, and that the analysis of the facts in
this case yields the same result under either state’s law.6
In New Jersey and Pennsylvania, the seminal principle in the
interpretation of an insurance contract is that it be given its
5 American Hardware argues that it simply informed plaintiff’s counsel that UIM benefits were available under the policy, but it did not promise that it would give plaintiff any of the UIM benefits available. The import of American Hardware’s representations are discussed below.
6 When there is no conflict between the law, the law of the forum state would apply. Rowe v. Hoffman-LaRoche, Inc., 917 A.2d 767, 771 (N.J. 2007) (“If there is no actual conflict, then the choice-of-law question is inconsequential, and the forum state applies its own law to resolve the disputed issue.”). Although the Court concludes that New Jersey and Pennsylvania law is not conflicting in the area of equitable estoppel under the facts of this case, the Court will still discuss Pennsylvania law in order to fully explain the lack of conflict.
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ordinary meaning, but in cases of ambiguity, the policy must be
construed against the insurer and in favor of coverage for the
insured, because insurance contracts are essentially contracts of
adhesion. Passaic Valley Sewerage Com'rs v. St. Paul Fire and
Marine Ins. Co., 21 A.3d 1151, 1158 (N.J. 2011) (citing Doto v.
Russo, 659 A.2d 1371, 1376-77 (N.J. 1995)); State Farm Fire & Cas.
Co. v. PECO, 54 A.3d 921, 935 (Pa. Super. 2012) (citing cases).
Moreover, in both states, an insurance company is precluded from
acting in a manner that misleads the insured, Griggs v. Bertram,
443 A.2d 163, 168-69 (N.J. 1982); Pfeiffer v. Grocers Mut. Ins.
Co., 379 A.2d 118, 121 (Pa. Super. 1977), and the presumption of
prejudice to the insured is presumed in certain circumstances,
Barrett v. New Jersey Mfrs. Ins. Co., 685 A.2d 975, 977-78 (N.J.
Super. Ct. App. Div. 1996) (citations omitted) (explaining that
even though “‘[t]he strongest and most frequent situation giving
rise to such an estoppel is one wherein a carrier undertakes to
defend a lawsuit based upon a claim against its insured,’ an
insurer also may be estopped by other forms of conduct
acknowledging coverage upon which an insured justifiably relies”);
W. O. Hickok Mfg. Co. v. Unigard Mut. Ins. Co., 15 Pa. D. & C. 3d
593, 595, 1979 WL 327, 1 (Pa. Com. Pl. 1979), cited in Treadways
LLC v. Travelers Indem. Co., 467 Fed. Appx. 143, 148 (3d Cir. 2012)
(explaining that Pennsylvania follows “the general rule that where
an insurance company which knows or should have known of a defense
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of nonliability under the policy assumes the defense of a claim and
conducts the matter to final judgment, it is estopped from
thereafter raising the defense of noncoverage”). Thus, in both
states, an insured may seek that an insurance company be equitably
estopped from denying insurance coverage because the insurer acted
to mislead, harm, or otherwise prejudice the insured.
In this case, plaintiff and American Hardware do not dispute
these tenets of New Jersey and Pennsylvania law governing an
insurance company’s duty to its insured. They diverge, however, on
(1) whether it was American Hardware who mislead plaintiff or
plaintiff who mislead American Hardware, (2) whether an insured
must show detrimental reliance under New Jersey or Pennsylvania
law, and (3) whether plaintiff suffered any detriment because of
American Hardware’s actions.
With regard to the first point, American Hardware argues that
plaintiff knew he was driving the van in a non-permissible manner,
and his attorney should have asked to examine the insurance policy
prior to settling plaintiff’s claim against Khan. If he had done
so, American Hardware contends that plaintiff would have been aware
of the exclusion to coverage for “Anyone using a vehicle without a
reasonable belief that the person is entitled to do so,” and not be
surprised about American Hardware’s ultimate decision to deny
plaintiff’s claim to UIM benefits.
As a primary matter, and as noted above, plaintiff disputes
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that he believed he was driving the van “impermissibly.” But, as
also noted above, even if it is accepted as true that plaintiff was
driving the van “without a reasonable belief” he was permitted to
do so, American Hardware’s placement of responsibility on plaintiff
and his counsel to discover a policy exclusion to UIM benefit
coverage is inequitable under the circumstances, for several
reasons.
First, unlike most of the insurance policies at issue in the
case law, plaintiff did not enter into the contract with American
Hardware, as the insurance coverage was procured by plaintiff’s
employer, DVLT, and plaintiff did not have any opportunity to read
the policy and know of its exclusions prior to coverage being
provided to him. Second, as the drafter of the insurance policy,
American Hardware is presumed to know its own policy terms.
O'Malley v. Continental Ins. Co., 451 A.2d 542, 544 (Pa. Super.
1982) (citation omitted) (“Insurers are not unduly burdened by a
requirement that they explain the exclusions of their policies to
insureds so that the insured can make an informed decision either
to assume the excluded risks or to obtain additional insurance to
protect against them.”); Boritz v. New Jersey Mfrs. Ins. Co., 968
A.2d 1223, 1229 (N.J. Super. App. Div. 2009) (“In weighing the
merits of an injured party's Longworth request to settle with a
tortfeasor, a carrier is, or should be, aware of its coverage
limits.”). American Hardware has not presented any case law that
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suggests a plaintiff whose employer procures insurance for his work
vehicle is required to seek out and know the policy’s exclusions to
coverage.
Third, for over three years between the time of the accident
and plaintiff’s Longworth notice, American Hardware paid plaintiff
“personal injury protection,” or “PIP,” benefits to plaintiff, and
in order to do so, American Hardware was provided with all the
details of plaintiff’s accident, including GPS records that showed
the accident occurred at 5:15pm when plaintiff did not have a
customer assignment. (Def. Statement of Undisputed Facts ¶ 31.)
Even though payment of PIP benefits to plaintiff does not
automatically entitle plaintiff to UIM,7 it demonstrates American
Hardware’s ability to confirm the parameters of its policy with
DVLT and to know of the circumstances of plaintiff’s accident.
Fourth, the purpose of plaintiff’s Longworth notice was to
provide American Hardware with the opportunity to investigate his
claim in order to decide whether to “offer to pay the insured the
amount of the tortfeasor’s settlement offer or the arbitration
award, usually the tortfeasor’s policy limit, in exchange for
subrogation of the insured’s rights against the tortfeasor; or,
7 See N.J.S.A. 39:6A-4 (“[E]very standard automobile liability insurance policy issued or renewed on or after the effective date of P.L.1998, c. 21 (C.39:6A-1.1 et al.) shall contain personal injury protection benefits for the payment of benefits without regard to negligence, liability or fault of any kind, to the named insured . . . .).
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allow the insured to settle.” Rutgers Cas. Ins. Co. v. Vassas, 652
A.2d 162, 168 (N.J. 1995). Thus, when plaintiff’s counsel sent
American Hardware a letter on March 4, 2010 asking whether it would
waive its subrogation rights and permit plaintiff to accept
Allstate’s offer of the $50,000 policy limits to settle plaintiff’s
case against Khan, plaintiff fulfilled his duty under Longworth.8
It was then American Hardware’s obligation “to weigh the relative
merits of allowing its insured to settle and paying the difference
in UIM benefits compared with paying its insured the settlement
offer plus UIM benefits and itself maintaining a subrogation action
against the tortfeasor.” Rutgers Cas. Ins. Co., 652 A.2d at 168.
Presumably after weighing its options, twenty days later on March
24, 2010, American Hardware agreed to permit plaintiff to settle
with Khan and waive its subrogation rights. When providing its
consent to plaintiff to settle his claim against Khan, American
Hardware did not inform plaintiff that it intended to invoke the
policy exclusion to coverage and deny plaintiff UIM coverage.
Based on these facts, the Court cannot find that plaintiff
acted inequitably toward American Hardware. Instead, these
8 See Rutgers Cas. Ins. Co. v. Vassas, 652 A.2d 162, 168 (N.J. 1995) (“[W]hen an insured under an automobile insurance policy providing UIM benefits is involved in an accident and undertakes legal action against the tortfeasor, the insured must notify the UIM insurer of that action. If, during the pendency of the claim, the tortfeasor's insurance coverage proves insufficient to satisfy the insured's damages, then the insured should again notify the UIM insurer of that fact.”).
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undisputed facts suggest that American Hardware did not fully
investigate plaintiff’s entitlement to UIM benefits prior to
providing its consent to plaintiff to settle and dismiss with
prejudice his case against the tortfeasor Khan. Thus, these
undisputed facts suggest that American Hardware misled plaintiff
and induced him to settle his claim against Khan because American
Hardware led him to believe that he was not precluded from UIM
benefits.
Moving on to the second point of contention between the
parties, regardless of any apparent mishandling of plaintiff’s UIM
claim, American Hardware argues that plaintiff cannot maintain his
estoppel claim against it because plaintiff was not actually
prejudiced by American Hardware’s actions. American Hardware
argues that because Khan is “judgment proof,” plaintiff could not
have recovered anything more from Khan had plaintiff not dismissed
his suit against him. Therefore, American Hardware contends that
plaintiff’s reliance on American Hardware’s consent to settlement
was not to plaintiff’s detriment.
The Court does not find that Pennsylvania and New Jersey law
are in conflict on the premise that an insured must have suffered
prejudice in some way in order to estop the insurer from
disclaiming coverage. See, e.g., Turner v. Federal Ins. Co., 1995
WL 33096, *2 (E.D. Pa. 1995) (citing Pfeiffer, 379 A.2d at 121;
Wasilko, 232 A.2d at 63) (explaining that in order to establish
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that an insurer should be estopped from denying coverage for a
claim, a plaintiff must establish that he relied upon the company’s
actions to his detriment); Miller v. Miller, 478 A.2d 351, 355
(N.J. 1984) (“To establish a claim of equitable estoppel, the
claiming party must show that the alleged conduct was done, or
representation was made, intentionally or under such circumstances
that it was both natural and probable that it would induce action.
Further, the conduct must be relied on, and the relying party must
act so as to change his or her position to his or her detriment.”).
Moreover, the Court does not find that Boritz v. New Jersey Mfrs.
Ins. Co., 968 A.2d 1223, 1227 (N.J. Super. App. Div. 2009) diverges
from this basic premise or represents a conflict between
Pennsylvania and New Jersey law.
In Bortiz, plaintiff Linda Bortiz was a passenger in a car
driven by Sally Iacono, who had an insurance policy with defendant
New Jersey Manufacturers Insurance Company (“NJM”). The driver of
the car who rear-ended Iacono’s vehicle had an insurance policy
with GEICO, and that policy provided $15,000 in liability coverage.
Due to the fact that $15,000 did not cover Bortiz’s injuries,
Bortiz’s attorney notified NJM that she would be filing a claim
with NJM for UIM benefits under Iacono’s policy, which provided up
to $100,000 in UIM benefits. Although Bortiz also had her own
automobile insurance policy with GEICO that had $25,000 UIM
coverage, NJM confirmed that the NJM policy was primary to Bortiz’s
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GEICO policy, but NJM also asked Boritz’s counsel to send NJM the
declarations page of Bortiz’s GEICO policy. Two months later, in
December 2006, pursuant to Bortiz’s Longworth notice, NJM consented
for Bortiz to settle with the other driver for the $15,000 policy
limits.
For four months thereafter, from December 2006 through April
2007, Bortiz’s counsel negotiated with NJM for UIM benefits, with
her last demand being $75,000, and NJM’s last counteroffer being
$32,023. In May 2007, NJM finally received the declarations page
from Bortiz’s GEICO policy it requested in October 2006, and NJM
determined that Bortiz was only entitled to $10,000 of the $100,000
UIM because of a “step-down” provision in the NJM policy. The
“step-down” provision limited the UIM benefits to a person not
named on the policy to the maximum of the UIM benefits available to
that person’s own insurance policy. Because GEICO provided $25,000
in UIM to Boritz under her own policy, and she had already
recovered $15,000 from the tortfeasor, NJM limited its UIM coverage
to Bortiz to $10,000, to provide Bortiz with a total recovery of
$25,000, which was equal to her own UIM policy limits.
Bortiz filed suit against NJM, arguing that NJM should be
estopped from enforcing the step-down provision. The lower courts
sided with NJM, but the New Jersey Supreme Court agreed with
Bortiz, for two reasons. First, the court found that NJM was
estopped because it confirmed to Bortiz’s counsel that the UIM
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coverage limit was $100,000, and plaintiff was entitled to rely on
that representation to forego the opportunity to seek redress from
the tortfeasor personally. Bortiz, 968 A.2d at 1229. For the
second reason, the court explained:
The second reason involves a carrier's duty of good faith. Although plaintiff does not assert that NJM intentionally misled her to believe that the UIM limits were $100,000, an insurer's duty of good faith is more than simply an obligation not to act in bad faith. . . . When an insurance carrier receives a Longworth request to settle, good faith requires the carrier to advise the injured party of the potential setoff in the policy afforded by the step-down provision before the injured party settles with the tortfeasor. . . . In weighing the merits of an injured party's Longworth request to settle with a tortfeasor, a carrier is, or should be, aware of its coverage limits. When a step-down clause is implicated, the carrier, like NJM here, should know that its UIM coverage limits are constrained by that provision. And just as coverage limits are important to the carrier, they are perhaps even more critical to an injured party's decision whether to settle for the tortfeasor's policy limits in exchange for releasing the tortfeasor from liability. From an injured party's perspective, knowing the UIM policy limits may have as significant an influence upon that party's decision to settle as knowing whether the insurance carrier provides UIM coverage in the first instance.
Id.
The court then addressed NJM’s argument that it was unaware
that the step-down provision would be triggered until it received
Boritz’s insurance declaration sheet, which it had requested from
Bortiz’s counsel on October 3, 2006. The court rejected that
argument, noting that NJM had requested the declarations page of
Bortiz’s policy to verify her chosen tort threshold, not to make a
determination of whether to invoke the step-down provision. Id. at
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1230. More importantly, the court found that NJM was in a position
to inform Bortiz that the $100,000 UIM limit could be reduced
depending upon whether she had her own UIM coverage, and had Boritz
received that information, she would have known that the maximum
available UIM coverage would be $25,000, less the tortfeasor’s
policy limits, and would have been able to make an informed
decision whether to release the tortfeasor in return for the
tortfeasor's $15,000 policy. Id. The court then concluded the UIM
limit available to Boritz was $85,000 (the $100,000 policy limit
less the $15,000 the injured party received from the tortfeasor),
subject to any other defenses that would otherwise be available to
NJM. Id.
Nothing in the Bortiz case changes the basic principle of the
equitable estoppel doctrine that a party must have suffered some
prejudice after reasonably relying upon another party’s
representations. If anything, it supports the principle relying,
as it does in part, on the notion that the insured was giving
something up (a higher potential recovery from the tortfeasor) by
relying on the UIM carrier’s policy limits.
Thus, having resolved the first two points of contention
between the parties - finding that it was American Hardware who
mislead plaintiff, and that an insured must show prejudice under
both New Jersey or Pennsylvania law - the Court now must turn to
the third, which is whether plaintiff actually suffered any
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prejudice because of American Hardware’s actions.
As noted several times above, American Hardware’s main
argument is that because Khan is “judgment proof,” plaintiff could
not have recovered anything more than the policy limit from Khan
had plaintiff not dismissed his suit against him, and therefore,
plaintiff’s reliance on American Hardware’s consent to settlement
was not to plaintiff’s detriment. The Court finds, under the
circumstances of this case, American Hardware’s argument to be
persuasive, and that plaintiff has not met his burden of
demonstrating that he has suffered a detriment by relying upon
American Hardware’s representation that UIM benefits were available
to him.
Reiterated in Bortiz and long recognized in Pennsylvania,
“‘the utmost fair dealing should characterize the transactions
between an insurance company and the insured.’” Berg v. Nationwide
Mut. Ins. Co., Inc., 44 A.3d 1164, 1170 (Pa. Super. 2012) (quoting
Dercoli v. Pennsylvania Nat. Mut. Ins. Co., 554 A.2d 906, 909 (Pa.
1989))(other citations omitted) (explaining that the insurance
company has a duty to deal with its insured on a fair and frank
basis, and at all times, to act in good faith); see also Bortiz,
968 A.2d at 1229 (citing Am. Home Assurance Co. v. Hermann’s
Warehouse Corp., 563 A.2d 444 (N.J. 1989)) (other citations
omitted) (“The duty of good faith ‘is a broad concept. Whether it
was adhered to by the carrier must depend upon the circumstances of
21 Case 1:11-cv-06663-NLH-AMD Document 40 Filed 12/30/13 Page 22 of 30 PageID:
the particular case . . . . The boundaries of good faith will
become compressed in favor of the insured depending on those
circumstances.’”). Acting fairly and frankly is to recognize that
an insured will rely upon the confirmation of the availability of
insurance coverage. See id.
In this case, as discussed above, American Hardware did not
act as a model of fairness and frankness to plaintiff. Plaintiff
provided American Hardware with notice that he was seeking UIM
benefits under the insurance policy that American Hardware issued
to plaintiff’s employer, and American Hardware was in the best
position to know the terms of the policy, including any exclusions
to coverage. During its investigatory period in response to
plaintiff’s Longworth notice, American Hardware could have, and
arguably should have, reviewed the terms of the policy, and
reviewed the circumstances of plaintiff’s accident.9 American
Hardware, however, never informed plaintiff or his counsel of that
possibility.
It was not until three months later, when a DVLT
representative contacted American Hardware to inquire about why
American Hardware declined to renew DVLT’s insurance policy, that
9 There is no evidence in the record that American Hardware knew that it would disclaim coverage based on the non-permissible use exclusion at the time it consented to plaintiff’s settlement of his case against Khan, or that it intentionally refrained from informing plaintiff and his counsel about the exclusion. If such evidence were in the record, it would obviously be indicative that American Hardware acted in bad faith.
22 Case 1:11-cv-06663-NLH-AMD Document 40 Filed 12/30/13 Page 23 of 30 PageID:
American Hardware finally recognized the non-permissible use
exclusion, and considered the circumstances of plaintiff’s
accident. The nature of the accident and the existence of the
exclusion had been knowable to American Hardware since the day of
the accident, and at least three years later when plaintiff
submitted his Longworth notice. American Hardware’s lack of
diligence in considering the policy terms and investigating the
nature of the accident do not weigh in American Hardware’s favor.
Ultimately, however, plaintiff has not demonstrated that even
if American Hardware had acted with the upmost diligence and candor
in response to plaintiff’s Longworth notice, what harm or prejudice
he suffered; what position, action, legal strategy, or course of
conduct he abandoned or did not take; what tangible or intangible
benefit he lost or failed to achieve; or what expenditure of time
or money he lost or needlessly wasted. In short, Plaintiff appears
to be in the same exact position vis-a-vis Khan regardless of what
he was or was not told by American Hardware.
The dispositive factor in this case, and the one that tips the
estoppel issue in favor of American Hardware, is that despite
American Hardware’s failure to inform plaintiff that UIM benefits
might not be available to plaintiff because of a policy exclusion,
and despite plaintiff’s release of his claims against Khan,
plaintiff has not shown any true detriment. Plaintiff has provided
no evidence of how his current position would be any different if
23 Case 1:11-cv-06663-NLH-AMD Document 40 Filed 12/30/13 Page 24 of 30 PageID:
he had not settled with Khan.10 It is plaintiff’s burden to
establish detrimental reliance, and plaintiff has failed to do so.
The purpose of the principle of equitable estoppel is to provide a
remedy for someone who suffers actual harm, whether tangible - such
as a monetary loss - or intangible - such as the loss of a right to
10 A review of the Pennsylvania case law cited by American Hardware does not support a different finding. In Pennsylvania, as in New Jersey, see American Handling Equipment, Inc. v. T. C. Moffatt & Co., 445 A.2d 428, 433 (N.J. Super. App. Div. 1982) (“It is to be noted that in Griggs, in the cases cited in the above quotation, and in the cases heretofore referred to in this opinion, there was in each case an underlying policy. Estoppel was in each case used to prevent the operation of an exclusion or to extend coverage. Here there never was a policy.”), the doctrine of estoppel may be invoked against an insurer with respect to an existing insurance contract, but it cannot create an insurance contract where none existed. AJT Properties, LLC v. Lexington Ins. Co., 2012 WL 7563170, 10 (Pa. Com. Pl. 2012) (citing Antone v. New Amsterdam Casualty Co., 6 A.2d 566,568 (Pa. 1939)) (other citations omitted). Accordingly, in Turner v. Federal Ins. Co., 1995 WL 33096 (E.D. Pa. 1995), Nationwide Mut. Fire Ins. Co. v. Salkin, 163 F. Supp. 2d 512, 517 (E.D. Pa. 2001), and Wasilko v. Home Mut. Cas. Co., 232 A.2d 60, 61 (Pa. Super. 1967), all cited by American Hardware, the courts did not find that the insurance companies were estopped from denying coverage because in each of these cases the plaintiff could never have been considered an insured under the policies. See Turner, 1995 WL 33096, at *1 (insurer denied UIM benefits to plaintiff because during the investigatory period the insurer determined that the plaintiff did not meet the definition of a covered family member under his father’s policy); Salkin, 163 F. Supp. 2d. at 516 (insurer denied UIM benefits under a policy issued to Herbert Salkin Realty, Inc. to the son of the company’s owner Herbert Salkin, because he could not be considered an insured under the policy); Wasilko, 232 A.2d at 61 (facts at trial revealed that the tortfeasor was not a covered party under the insurance policy that the plaintiffs contended should provide coverage for their injuries). Importantly, these courts also noted that the plaintiffs did not rely to their detriment on the insurance companies’ actions because they did not produce evidence that they could have recovered more from the tortfeasors. Turner, 1995 WL 33096, at *2; Salkin, 163 F. Supp. 2d. at 517-18; Wasilko, 232 A.2d at 63.
24 Case 1:11-cv-06663-NLH-AMD Document 40 Filed 12/30/13 Page 25 of 30 PageID:
control a defense - because of reliance on the representations of
another. The purpose of the requirement of harm as an necessary
element is to prevent the doctrine from swinging too far that other
way and creating a contract where none existed. Absent detrimental
reliance, American Hardware is not estopped from enforcing the
policy exclusion to deny plaintiff’s UIM benefits claim.
However, it must still be determined if American Hardware
properly invoked the policy exclusion to deny plaintiff UIM
benefits.11 The Court finds that American Hardware has
sufficiently supported the propriety of its denial of UIM benefits
to plaintiff based on the policy exclusion.
The Pennsylvania Underinsured Motorists Coverage endorsement
excludes coverage for “Anyone using a vehicle without a reasonable
belief that the person is entitled to do so.” (Def. Ex. A, Docket
No. 37-1 at 75.) American Hardware argues that when plaintiff was
hired, he signed a document acknowledging that the van was not to
be used for personal use, and that he was involved in the accident
while using the van for a personal use. Plaintiff contests that
his use of the van at the time of the accident was not permitted by
his employer. Plaintiff further argues that the form, which
11 According to the UIM endorsement, although the determination as to the amount of UIM benefits an insured is entitled to may be arbitrated, whether the policy affords an insured UIM coverage at all may not be arbitrated. (See Def. Ex. A, Docket No. 37-1 at 76 (“[D]isputes concerning coverage under this endorsement may not be arbitrated.”)).
25 Case 1:11-cv-06663-NLH-AMD Document 40 Filed 12/30/13 Page 26 of 30 PageID:
purportedly confirms his understanding that he was not to use the
van for personal use, does not demonstrate that he knew of the
restriction or evidences that his use of the van at the time of the
accident was knowingly in violation of company policy.
As a threshold matter, the interpretation of an insurance
contract is a question of law. In both Pennsylvania and New
Jersey, insurance policy terms are given their ordinary meaning.
If a term is ambiguous, it must be construed in favor of the
insured, and it must also comport with the reasonable expectations
of the insured. A court, however, cannot distort the meaning of
the language or resort to a strained contrivance in order to find
an ambiguity. Spece v. Erie Ins. Group, 850 A.2d 679, 682 (Pa.
Super. 2004) (quoting Gene & Harvey Builders v. Pennsylvania Mfrs.
Ass'n, 517 A.2d 910, 913 (Pa. 1986)); Simonetti v. Selective Ins.
Co., 859 A.2d 694, 698 (N.J. Super. Ct. App. Div. 2004) (citations
omitted) (“A genuine ambiguity exists when the phrasing of the
policy is so confusing that the average policyholder cannot make
out the boundaries of coverage.”). Where an insurer relies on a
policy exclusion as the basis for its denial of coverage, the
insurer has asserted an affirmative defense, and bears the burden
of proving such defense. Spece v. Erie Ins. Group, 850 A.2d at 682
(quoting Madison Construction Co. v. Harleysville Mutual Ins. Co.,
735 A.2d 100, 106 (Pa. 1999)); Flomerfelt v. Cardiello, 997 A.2d
991, 997 (N.J. 2010) (explaining that the burden is on the insurer
26 Case 1:11-cv-06663-NLH-AMD Document 40 Filed 12/30/13 Page 27 of 30 PageID:
to bring the case within the exclusion).
Here, the Court finds that American Hardware has satisfied
its burden of proving that the exclusion is applicable, and that
plaintiff has failed to sufficiently refute American Hardware’s
proofs. First, the exclusion itself is not ambiguous.12 It does
not strain the construction of the policy exclusion to ask the
simple question of whether the person driving the insured vehicle
had, or did not have, a reasonable belief the person was entitled
to do so.
American Hardware has provided sufficient proofs, which
plaintiff has not refuted, that plaintiff could not have had a
“reasonable belief” that he was permitted to use the van at the
time of the accident. Although plaintiff testified at his
deposition that at the time of the accident he was not using his
van for a personal activity, he cannot recall why he was driving
the van at that time on that day, and plaintiff does not dispute
that the van was to be used for work-purposes only. (Def. Ex. B,
Docket No. 37-2 at 20, 21-23, 41, 42.) It is also undisputed that
at the time of the accident, plaintiff was not driving his van to
12 This is not a case where the Plaintiff held reasonable expectations as to coverage based on the language of the contract or was misled by any confusion or ambiguity in the language chosen to describe the policy, its coverage, or its exclusions. As pointed out above, plaintiff did not enter into the insurance policy with American Hardware. Plaintiff could not have had any reasonable expectations regarding, or been misled by, a policy he never saw.
27 Case 1:11-cv-06663-NLH-AMD Document 40 Filed 12/30/13 Page 28 of 30 PageID:
or from any scheduled work-related customer appointment. (Def. Ex.
I, Docket No. 37-2 at 89.)
Although plaintiff contends that he and DVLT had a tacit
understanding about the permissibility of plaintiff’s daily use of
the van, when American Hardware issued the UIM policy to DVLT it
explicitly exempted from coverage any use of the van that the
driver reasonably understood to be impermissible as directed by
DVLT. DVLT directed its drivers in writing not to use the van for
personal use. Thus, a DVLT driver understood that using the van
for anything other than work-related activities would not be
reasonable. This is what American Hardware contracted to insure.
American Hardware did not contract with DVLT to insure plaintiff’s
amorphous non-personal, non-work use. American Hardware has
demonstrated that at the time of the accident, plaintiff did not
have a scheduled customer appointment, and he knew that the van
should not be used for personal use.
Plaintiff’s only rebuttal to American Hardware’s proofs is a
simple denial, without more, that he was not using the van for a
personal errand. All the record evidence, however, demonstrates
otherwise. To simply deny remembering any other details about why
he was driving the van at the time of the accident is insufficient
to create a disputed issue of material fact. To successfully
refute American Hardware’s position that plaintiff did not have a
“reasonable belief” that he was permitted to use the van at the
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time of the accident, plaintiff is required to offer more than his
self-serving expression of his belief that the use of the van was
“reasonable.” See Saldana v. Kmart Corp., 260 F.3d 228, 232 (3d
Cir. 2001) (explaining that in order to defeat summary judgment, a
party must do more than just rest upon mere allegations, general
denials, or vague statements); Heffron v. Adamar of New Jersey,
Inc., 270 F. Supp. 2d 562, 574-75 (D.N.J. 2003) (citations omitted)
(“[I]n order to defeat a properly supported motion for summary
judgment, a plaintiff cannot simply rely on ‘vague,’ ‘self-serving’
statements which are ‘unsupported by specific facts in the
record.’”). Accordingly, because the Court finds that the UIM
“reasonable belief” exclusion is not ambiguous, and that American
Hardware has demonstrated that plaintiff’s use of the van at the
time of the accident falls within the UIM exclusion, American
Hardware’s denial of plaintiff’s claim for UIM coverage based on
the exclusion was not improper.
CONCLUSION
Principles of equitable estoppel do not bar defendant’s
invocation of a policy exclusion because plaintiff has failed to
offer sufficient proof that he relied to his detriment on
defendant’s consent to release plaintiff’s claims against the
tortfeasor. Moreover, American Hardware properly denied
plaintiff’s claim for UIM benefits based on that policy exclusion.
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Plaintiff has failed to raise a material issue of fact that his use
of the DVLT van at the time of the accident was based on a
reasonable belief he was permitted to use the vehicle as he did.
Consequently, plaintiff’s motion for summary judgment shall be
denied, and defendant’s cross-motion for summary judgment shall be
granted.
An appropriate Order will be entered.
Date December 30, 2013 s/ Noel L. Hillman At Camden, New Jersey NOEL L. HILLMAN, U.S.D.J.
30